Regulation of Foreign Direct Investment After the Dubai Ports ...

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312 The Journal of Corporation Law [34:1 the next time Congress reforms the CFIUS process. A. Removal of the Mandatory Investigation of Foreign Government-Controlled Transactions The modification to the Byrd Amendment, which requires both the Secretary of the Treasury and the head of the lead agency to authorize a dismissal of a foreign government-controlled transaction pursuant to the investigation phase, is unnecessary. Requiring a mandatory investigation ties up CFIUS resources, opens the CFIUS to political motivations, and puts unnecessary accountability on the Secretary of the Treasury and the head of the lead agency without affecting how the CFIUS process ensues. 133 A CFIUS review moves into the investigation phase if ―the transaction threatens to impair the national security of the United States,‖ 134 regardless of whether a foreign government is a party in the transaction. One critique of the original Byrd Amendment was that it did nothing to change the CFIUS process; unfortunately, creating personal responsibility within the CFIUS will not change it either. 135 This mandatory investigation will expend CFIUS resources that could be better allocated to transactions that actually impair national security. Also, the Secretary of the Treasury or the head of the lead agency are likely unwilling to take personal responsibility for dismissing a transaction that could result in public backlash. Requiring an investigation of a foreign government-controlled transaction creates a possibility of an informal boycott of controversial countries that the current formal boycott procedures could better handle. Congress created well-defined boycott laws to address countries that the U.S. government would like to economically pressure into changing certain conduct. 136 By allowing a possible informal boycott by the CFIUS, Congress undermines the effect of the formal procedures. This mandatory investigation might also lead to political backlash from countries in which companies are largely owned by the government. With the current world tensions towards the United States—mainly in response to the Iraq war—enacting laws that seem imperialistic and restrictive towards non-market based economies might exacerbate these anxieties. FINSA also has the extraterritorial effect of making foreign companies who plan to invest in the United States hesitant about allowing any ownership by that government. Therefore, Congress should remove the required investigation of foreign government-controlled transactions not only because it is unnecessary, but also to prevent the ensuing political backlash that would result if the world perceives FINSA as another U.S. attempt to westernize non-market based economies. 133. This unnecessary accountability comes from the fact that the only way to avoid the mandatory CFIUS investigation is to have both the Secretary of the Treasury and the head of the lead agency jointly determine that the transaction will not impair national security. 50 U.S.C.A. app. § 2170(b)(2)(D)(i). Given the politics that will likely be involved in a foreign-government controlled transaction, it is unlikely that any of these transactions will be able to avoid the investigation phase by having the Secretary of the Treasury and the head of the lead agency accept the accountability of a possible political backlash. 134. Id. § 2170(b)(2)(B)(i)(I). 135. See Byrne, supra note 52, at 868 (discussing critiques of the Byrd Amendment). 136. See, e.g., Cuban Liberty and Democratic Solidarity Act, 22 U.S.C. §§ 6021–91 (1996) (detailing the formal boycott against Cuba).
2008] Regulation of Foreign Direct Investment 313 B. Creation of a Separate Committee to Review All FDI Transactions and Initiate CFIUS Reviews Congress should create a separate committee—in addition to the CFIUS—to study all FDI, report the findings to Congress, and initiate CFIUS reviews. CFIUS reviews have increased exponentially since the DP World controversy, 137 further depleting the CFIUS‘s limited resources. By requiring the CFIUS to conduct a study of FDI, and allowing any member to initiate a CFIUS review, FINSA increases the responsibility of the CFIUS, which could cause the CFIUS to lose focus on investigating the transactions already in front of it. Separating the functions of investigating specific transactions and reviewing all FDI transactions to determine which ones should be subject to further investigation will create a more efficient and effective process. Assigning a separate committee to initiate CFIUS reviews will also mitigate any ulterior motives that could affect CFIUS members, such as reducing workloads, political motivations, and favoritism of certain companies. To prevent these same motives from affecting the initiation process, Congress should require a majority of CFIUS members to approve a review and construct this separate committee with different members. Not only will this new committee increase the focus of the CFIUS, it will also serve as a check on the CFIUS‘s activities. This new committee should be composed of members that have more of a focus on national security than the CFIUS. Instead of the Secretary of the Treasury as chairperson, the Secretary of Homeland Security should head this committee. Other members should include the Secretary of Defense, along with the directors of the CIA and the FBI. The goal of this committee would be to better define which transactions actually could have a direct impact on critical infrastructure and technologies in the United States. By forming a separate committee, the CFIUS would be allowed to focus only on the specific review and possible investigation of transactions forwarded by this committee or voluntarily submitted by the companies in the transaction, instead of the current system, which requires the CFIUS to catch any suspicious transactions and subject them to a mandatory review. C. Rework the Evergreen Provision to Only Include Intentional Fraud by the Parties to the Covered Transaction Congress should allow the President or the CFIUS to reopen a covered transaction only if they find intentional misconduct on the part of the parties to a covered transaction. FINSA allows the CFIUS to reopen a transaction after prior dismissal if ―any party to the transaction . . . omitted material information, including material documents.‖ 138 This provision puts the burden of determining what information the CFIUS should consider material on the parties to the transaction, and allows the CFIUS to ignore the binding effect of a review whether the party intentionally omitted the material or not. FINSA cripples the effectiveness of the voluntary notice because, without requiring intentional omission, a party to a covered transaction gains no security by voluntarily 137. See supra note 118 (noting the significant increase in filings, second-stage investigations, and withdrawals before FINSA became effective). 138. 50 U.S.C.A. app. § 2170(b)(1)(D)(ii).
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